There is room for China to raise interest rates and the reserve requirement for banks, the central bank governor Zhou Xiaochuan said again.

Some economists said it means the central government will continue to tighten monetary policies to curb inflation.

But the regulator gave no indication of when such moves would take place.

"The central bank will take full control of the timing and strength to adjust the monetary policies," said Zhou in Beijing yesterday.

His remarks were made against the backdrop that consumer prices, the main gauge of inflation, surged 8.7 percent in February from a year earlier, the highest in nearly 12 years.

Also last week, the National Bureau of Statistics reported producer prices, the factory-gate inflation gauge, increased 6.6 percent last month, a three-year high.

Although China's M2, the broadest measure of money supply, rose 17.5 percent to 42.1 trillion yuan (US$5.9 trillion) at the end of February, slower than January's 18.9-percent growth, it does not ease pressure brought by surging prices.

"We believe Zhou's remarks show that the central bank is preparing to raise the interest rate, possibly with different rates for lending and borrowing," said Li Maoyu, an analyst at Changjiang Securities Co.

Wang Tao, an economist with the Bank of America, predicted the central bank would renew credit controls with a modest interest rate increase possibly, later this month.

Morgan Stanley predicted the reserve requirement would be raised, but that interest rates would remain at present levels.

Since last year, China has increased interest rates six times and raised the reserve ratio on 11 occasions to cool the economy and tame inflation.

(Shanghai Daily March 17, 2008)